THE International Monetary Fund has slashed its economic forecasts for Australia, warning of a new global recession that would hit commodity prices and drive millions worldwide into unemployment.

Hours before the fund published its unexpectedly gloomy update in Washington, the Reserve Bank of Australia released a statement expressing concern about the global outlook and opening the way for interest rate cuts should things deteriorate.

The Australian dollar slid to a five-week low of US102¢ over renewed concerns about Europe after Italy lost its A+ credit rating. Australian shares fell 1 per cent.